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Who’s buying ARM? Not Apple, not Intel… nobody

The rumor that Apple is about to buy ARM is just the latest manifestation of a …

It happens like clockwork, and often the subject is Apple: a company has a great earnings report and is sitting on a ton of cash, and analysts and pundits start dreaming up names of smaller companies who the flush company could acquire. At about this time in 2008, Apple was going to buy Adobe. Earlier that year, Apple was going to buy Yahoo. Indeed, there's a pretty straightforward way, depicted above, to get a sense of the number of names that have been floated as likely Apple purchases—just ask Google autocomplete.

Fabless chipmaker ARM is the latest post-earnings target of buyout speculation, and whoever planted the rumor in the press has no doubt cashed out already after having driven the stock price up today. The instantly popular theory goes that Apple would buy ARM in order to keep anyone else from using ARM products, so that it could have the low-power architecture all to itself. Apple could certainly afford it—ARM's market cap is a relatively small $8 billion, and Apple is sitting on almost $42 billion in cash.

The Apple/ARM rumor is being widelydebunked, and rightly so, with any number of solid reasons given for why this won't happen. But one point that I have yet to see raised is that the proposed "buy it, then cut off the competition" scenario seems fairly impossible to execute, even if Apple were so inclined.

All of the big and medium-sized players who want ARM licenses already have them. If Apple bought ARM, they could refuse to grant new licenses, but they couldn't just magically revoke all of the existing licenses. Samsung, Qualcomm, NVIDIA, TI, and everyone else in the ARM ecosystem all have ARM-based roadmaps that go out for many years, and all of the products on those roadmaps are based on licenses that Apple can't just unilaterally invalidate. So if Apple did buy ARM, we'd still see a healthy stream of non-Apple ARM products coming to market over the next five years. And while the massive ARM ecosystem pipeline empties out, chipmakers would have plenty of time to switch to an alternative low-power architecture like the venerable and still-popular MIPS.

The only company that I could imagine buying ARM right now is Intel, but even given Intel's recent statements that it's looking to spend some cash to buy its way into mobiles, this is still unlikely. Intel is still in antitrust hot water in the x86 market, and any Intel/ARM purchase would invite immediate and careful scrutiny from regulators. And then there's the fact that Intel was already in the ARM business not long ago with the XScale line, but the chipmaker exited it to focus on moving x86 into low-power applications. It's doubtful that Intel has already given up and is going back to ARM.

In the end, the most likely acquirer for ARM is nobody. ARM licenses are relatively cheap, which is why they're so ubiquitous, and which is also why ARM's market cap and revenues are so tiny despite that ubiquity. Given how widely licensed ARM cores are, the fact that a strategic acquirer can't just revoke everyone's license and nuke the entire ecosystem's product pipeline, and the small size of ARM's business, it's just not a very attractive takeover target from either a strategic or revenue standpoint. That isn't to say that no one will ever buy ARM—some group of people somewhere could decide that it makes sense for their business—but the point is that there's no obvious reason for it to be a target.

The reason wouldn't be to crush competition; it would be to get chips designed for a particular purpose that Apple wants.

they can do that already. I mean, did everyone already forget about the A4? You can license the IP to design your own CPU (e.g. Snapdragon,) you can license an ARM processor design and manufacture it, and so on.

But two of the arguments you pose, namely that these rumors startup after every earnings call or that this particular rumor was started to manipulate the stock price of ARM, fail to convince.

Internet pundits might be good for google autocomplete hits, but they aren't going to stir up business reporters. And yes, this could be a rumor floated to manipulate stock price of one of the companies (according to at least one former hedge fund manager, Apple is often a favorite target of such rumors, the volatility of Apple's stock prices lends itself to this) but the odd thing is that neither CEO has categorically stated nothing is happening.

Your contention that all the big players have ARM-based roadmaps (and licenses) going out several years is a telling point. But that leaves out the question of what Apple's real motive here could be. You have only to look at Apple's track record to see that they have a history of entering what appear to be fallow markets and introducing completely disruptive products, turning the markets on their heads.

It's possible that Apple is about to do the same again, perhaps in a market where a fabless chipmaker that specializes in low power embedded systems stands to make boatloads of cash.

These kinds of rumors are very common, but this is the first I recall that was reported in the press before being floated by some pundit or analyst.

Regulators generally do not act in cases of vertical integration. Apple is a software company that creates hardware; if they move into the processor design business, that's vertical integration. If I have a paper company, I can certainly buy up the largest delivery company, no problems. There could be a problem if the delivery company gets shutdown to other customers, but again, it's not tremendously likely. For some reason, people have this idea that regulators will destroy companies for most mergers, and it's just not true; anti-competitive intervention is very rare since anti-competitive regulations have been around.Regulators target horizontal integration more often. Jon's comments about Intel buying ARM are horizontal integration. Intel already makes processors and buying a sizable competitor would cause some anti-trust problems. However, the merger wouldn't be allowed at all. Again, regulators don't step in very often.

About the Apple and ARM thingy, it's not going to happen. It's outside Apple's expertise -- general consumer products -- and wouldn't make financial sense. The A4 is a good example of Apple using an ARM design, and let's not forget that Apple bought PA Semi just a couple years ago.

True. But that quote is a non-denial denial. It's the kind of CEO speak you use when you want to keep something under wraps.

"We are not in discussions with Apple and never have been." That would be a denial.

Asking whether it makes financial sense for Apple to buy them, that's dodging the question. If Apple does want to buy them, the ARM CEO knows why and loses nothing by asking the interviewer if he or she knows why. It seems like a denial, but isn't.

The only reason I could imagine Apple buying ARM would be to cut down on the number of cheap, ubiquitous competitors to its products. Tablets that are 90% as good as an iPad at 1/4, perhaps even 1/10th the price. For of all the very salient reasons Jon has illustrated in the above article, at best, such a strategy would slow down this commoditization by a few years, at worst, not at all.

Were Apple to buy Arm, they "might" be able to increase licensing costs to new licensees or hold back on newer designs. They might be able to keep the lowest cost competitors at bay for a mere handful of years, then again, maybe not. It's entirely possible that ARM's contracts with it's licensees extend many years into the future, requiring ARM to share upcoming designs while locking in prices. As Jon points out, a mere 5 years period would be more than enough time for the industry to migrate to MIPS or X86. For Apple, such contracts would be a definite poison pill.

Worse yet, an Apple purchase of ARM could cause ARM's profitability to take a large and ever-growing hit. Most companies HATE to put money in their competitor's pockets. They'll do so when they have to, but will avoid doing so wherever possible. Even more importantly, smart going concerns never, ever allow their core supply chain to be at the mercy of a competitor's whim. Were Apple to buy ARM, Apple's largest competitors would likely try to migrate away from ARM as soon as humanly possible. Since most phone manufacturers count Apple as a competitor and cell phones make up a massive percentage of ARM's market, Apple's ownership of ARM could cause ARM's profits to quickly spiral downwards. Their 8 billion dollars would at most, buy Apple a handful of years, at the end of which ARM would be a mere shell of its current self.

Now if ARM were an Intel type of company that didn't license its core designs to other companies, this rumor would be a LOT less crazy. Apple is desperately concerned about Androids growth curve and would certainly spend 8 billion dollars if they thought it would throttle back Android's rocketing market share.

I suspect Apple sees the same future I do. One in which Android will be in most TV's, refrigerators, cars, electric meters, and anything else that has a dollar or two worth of CPU. The rock bottom pricing, high computational power and low power requirements of the ARM architecture is a key link to Android's future dominance.

As this article clearly points out, it's not a link that Apple has any hope of severing.

The only reason I could imagine Apple buying ARM would be to cut down on the number of cheap, ubiquitous competitors to its products. Tablets that are 90% as good as an iPad at 1/4, perhaps even 1/10th the price.

Dude, I live in HK and work in Mong Kok - I have access next to my office to every cheap Chinese iPad/tablet knock off known to man, as well as the quality ones.

I can assure you your "90%" and "1/4", "1/10th" numbers are way, way, way, off.

The main reason ARM would be hard to buy is that it would instantly be worth less if it was bought by anyone that the licensees might be nervous about -- especially if it was another licensee. One of the reasons ARM is successful in its strategy is because it doesn't compete with its licensees. It really acts more like one of the standards-making bodies -- relatively non-conflicted third-party that develops the standard then licenses it out for a reasonable fee. Pretty much anyone can get an ARM license and no licensee is granted an advantage by ARM. As soon as one competitor controlled it, the others would get really nervous. Even if the buyer pledged to not do anything different... competitors would worry about how long that pledge might actually last. Remember the brouhaha over the fact that Intel had early access to the USB reference design. (I forget which one, maybe USB 2.0?) And that was just a few months lead time on an I/O module. Imagine the head start if one company got much earlier access to ARM designs than anyone else.

The only reason I could imagine Apple buying ARM would be to cut down on the number of cheap, ubiquitous competitors to its products. Tablets that are 90% as good as an iPad at 1/4, perhaps even 1/10th the price.

Dude, I live in HK and work in Mong Kok - I have access next to my office to every cheap Chinese iPad/tablet knock off known to man, as well as the quality ones.

I can assure you your "90%" and "1/4", "1/10th" numbers are way, way, way, off.

Perhaps I wasn't as clear as I should have been. I wasn't talking about current prices, but about potential future prices, say, 2 years from now.

Apple's 2010 tablets sell for a minimum of $500. I cannot imagine Apple wanting to to sell their their 2012 tablets for $125, let alone $50. Apple is NOT a low-price manufacturer. That said, I can certainly imagine Android tablets with capabilities nearly equal to an iPad selling in Hong Kong for under $125 in 2011 or 2012, perhaps even as low as $50.

The most expensive component in most iPad style tablets is the screen. The iPad's screen is in the $60 dollar range. The SoC's are already cheap, and flash memory drops by 50% per year. Screens are the key to low price Android tablets.

Right now, there are 5 or 6 e-ink technologies on the market or about to hit the market. Together, they should put strong price pressure on both LCD and OLED. It will not at all surprise me if tablet screens experience dramatic price drops in the next two years. I could certainly see a 2011 or 2012 10" touch screen in the $20 dollar range. Further, ARM licensees like Samsung or Qualcom are bound to produce all-in-one specialized ARM SoC's for tablets, sharply reducing component costs.

Put all that together and it adds up to $75 Android tablets, perhaps even cheaper. If Apple could prevent or significantly delay those products by spending 8 billion for ARM, I think they would, but as this article clearly demonstrates, buying ARM wouldn't accomplish that goal.

The reason wouldn't be to crush competition; it would be to get chips designed for a particular purpose that Apple wants.

they can do that already. I mean, did everyone already forget about the A4? You can license the IP to design your own CPU (e.g. Snapdragon,) you can license an ARM processor design and manufacture it, and so on.

Yes, you can license the IP to design your own CPU. But you can't directly control the direction of IP development (e.g. ARMv8), you have to work with what ARM offers. Now is that control worth 8 billion? Personally I don't think so.

If Apple absolutely wants to buy a (fabless) chipmaker, it should buy IMAGINATION (PowerVR). Apple already uses their IP (SGX, VXD) and with OpenCL/GPGPU etc. GPUs will become more important in the smartphone sector too. And Apple already owns nearly 10% of company (but Intel also owns 16% of it).

Apple did buy into(9.5%) Imagine Technologies, the supplier of the graphics of the iPhone/iPad.

Imagine Technologies is also another British fab-less chip designer that has gained ubiquity through the PowerVR. Apple may have a similar strategy with ARM, rather then buying them outright they may decide to buy into them insuring that other companies can't do what Apple is being accused of possibility doing, which is to monopolize the ARM license.

The biggest thing this Apple rumor does bring to the forefront is the rather potential dangers of the ARM ecosystem of potential takeovers. ARM works because its accessible to any manufacturer.

This is probably the first sane analysis of these ridiculous rumors. Thanks Jon.

As some of the commentators have also pointed out, the moment anyone in the Tech industry (not talking about PE folks, and Hedge funds) buys ARM, their value will disappear. Purchasing ARM is just not a good option for anybody.

Reputable news sources shouldn't report on unsubstantiated rumors, and all this bullshit wouldn't take off.

The reason they report on it is that it makes news, gets attention and drives traffic to the news source and generates revenue. When the news became a profit center it became something to take with a grain of salt.

I doubt such a deal between ARM and Apple would be able to get past regulators as cited in the article. (And personally I hope regulators do block such a move.) As noted, even if they did managed to get it through, Apple would unlikely be able to revoke current ARM based designs. Such a move would be entirely about future, not the past or present. There are very few companies that develop ARM cores from scratch. Most companies simply license a design directly from ARM and apply additional logic for their system-on-a-chip needs. Apple would be under no obligation to license out future core designs to competitors. If Apple's competitors continued to desire ARM cores, they'd either have to use what they're currently licensed or go to one of the few ARM architecture license holders for a design. The alternative is moving to a new platform. The downside to all of these options is that ARM has the leading edge in performance-per-watt which clearly would give Apple an advantage in the utlra mobile market. In five years would IBM and Intel be able to offer PowerPC and x86 chips respectively with similar performance and power characteristics as ARM would be able to offer? IBM might be able to do it but a change in hardware wouldn't be the only problem facing vendors. Apple buying ARM isn't just about setting back hardware competitors but also software competitors. Google would have to port Andriod to another platform. Similarly MS would have to port Windows mobile. Wtih future ARM designs becoming isolates, there would be a rush of alternative platforms to fill the void which would divide the market. This forces competitor's software to become more portable and thus lose power and performance optimization in order to work across several different product lines. With every other cell phone trying to promote their own app store variant, a hardware change throws binary compatibility into question. Will the apps you buy today work with hardware and software stack for your next phone? Emulation is a possible solution but one that would have an impact on battery life. Apple buying ARM would certainly be disruptive but would it really do $8 billion in cumulative damage to immediate competitors? I'm inclined to say yes but it certianly wouldn't be death stroke on its own. Apple just needs to cause enough disruption to solidify its market share as the dominate player in the long run. With the ultra mobile market still in its infancy, such a distruption is all that is needed for Apple to gurantee a significant percentage of the market over the long run. By the time competitors solidfy their hardware and software base on a new platform, it'd be like trying to launch a new MP3 player today up against the iPod on slaught. The only thing more foolish would be engagingin a land war in Asia.

ARM's market cap is about 3.4 billion pounds, which converts to $5.2 billion. The $8 billion figure is speculation on what Apple might offer for it.

Nevertheless, whatever one thinks about the odds of Apple buying (all of) ARM, it could make sense for Apple to invest in the company. Apple's long term roadmaps depend on ARM (and as a part owner it might be able to influence the direction of the company) and the return on an investment in ARM would probably be better than the return on keeping that money around as cash (or as lower risk/return investments).

I would just point out, there was no firm denial in the actual quotes from the ARM executive in actual news reports. That doesn't mean anything, but the counter-rumor is as apparently baseless as the original rumor apparently was.

I see that sites like this are claiming the mantle of "journalism" now. Great. So, try it once or twice. Try not to get spun by PR speak.

And to the commenter above that thinks that Apple acquiring ARM would raise antitrust concerns, I would just ask after couging *In*freakin*tel: do you think every merger or acquisition triggers antitrust concerns? Just asking. Just because some reporter says Company X has Y% share of market Z doesn't mean Market Z is one that is important for antitrust. I mean, I have the market for male 30-something Jewish attorneys on my side of this street. If I force another person with those demographics to rent space across the street, there is no antitrust concern.

Finally, I would just add that imho the acquisition that makes the most sense for a number of irrational reasons would be AAPL to try to do some kind of takeover of MSFT. I know. AAPL isn't bigger. Yet. It would be a cultural nightmare. I know. And, just because Windows is itself a monopoly, yes, I do think this would raise antitrust concerns. But it might also solve them, because Apple doesn't want anything other than Microsoft's Office unit.

If Apple owned Microsoft Office, it could make a quantum leap in desktop computer. One wonders if that's even a market they see in their long-term plans...

The reason wouldn't be to crush competition; it would be to get chips designed for a particular purpose that Apple wants.

they can do that already. I mean, did everyone already forget about the A4? You can license the IP to design your own CPU (e.g. Snapdragon,) you can license an ARM processor design and manufacture it, and so on.

Yes, you can license the IP to design your own CPU. But you can't directly control the direction of IP development (e.g. ARMv8), you have to work with what ARM offers. Now is that control worth 8 billion? Personally I don't think so.

Actually, you can buy a license to use the ISA as it is and design your own silicon from it, including adding your own 'special sauce' to it, if you want. It's a branch of the IP and not necessarily controlling the entire IP, but it usually gets the job done (to put your own stuff in it).

And to the commenter above that thinks that Apple acquiring ARM would raise antitrust concerns, I would just ask after couging *In*freakin*tel: do you think every merger or acquisition triggers antitrust concerns? Just asking. Just because some reporter says Company X has Y% share of market Z doesn't mean Market Z is one that is important for antitrust. I mean, I have the market for male 30-something Jewish attorneys on my side of this street. If I force another person with those demographics to rent space across the street, there is no antitrust concern.

Apple would then own 100% of the computer-phone processor market, and would use that ownership to strengthen its own position in the computer-phone market. Using a monopoly in one market to improve your position in another market is precisely the reason for anti-trust law.

The "real facts" that this article is trying to get across ... is that all the stories about 'somebody' buying ARM ... were almost certainly FUD by somebody.

Several people, Chuckstar and DrPizza included ... make the points I think are pretty obvious here.

The whole damn reason ARM succeeds is that it is as close to an "open source" CPU design as seems to be possible, and that is what he embedded market wants. Anyone trying to make it proprietary will simply "kill its golden goose." And the point that neither Apple or Intel could do so without really serious anti-trust concerns (nor would either sensibly want to do so) strikes me as obvious too.

Neither Apple nor Intel would need to OWN ARM in order to be able to develop higher-performance variants, should they choose.

Finally, some common sense. I read the story on /. and all those comments about how smart it was and how much sense it made. What the hell are they smoking to think Apple would buy ARM? As others have said, they can make their own CPUs if they want, they already have an ARM license. The only benefit of buying ARM would be to increase their revenue or to kick others out. Apple doesn't need the additional money, working on something that's not core to their business. Sure they have some chip designers, it makes sense to have in-house expertise. As for kicking others out, why? They control their devices with an iron fist already and ARM is an underlying technology. ARM isn't what makes the Iproducts so special, it's the software.

The only reason I could imagine Apple buying ARM would be to cut down on the number of cheap, ubiquitous competitors to its products. Tablets that are 90% as good as an iPad at 1/4, perhaps even 1/10th the price.

Dude, I live in HK and work in Mong Kok - I have access next to my office to every cheap Chinese iPad/tablet knock off known to man, as well as the quality ones.

I can assure you your "90%" and "1/4", "1/10th" numbers are way, way, way, off.

I like ARM a lot and in fact own a small amount of ADR shares. However, ARM trades very high for its earnings. The economics of a purchase of ARM really does not make sense for any company but maybe one noted below. Assuming an $8B acquisition, that would be at an EBITDA multiple of 73.8x 2009 EBITDA (cash enterprise basis, ARM has no debt that I saw, so it is market cap plus assumed premium only). The highest chip related purchase of notable scale that I can recall was Freescale years back at like 18x Enterprise Value if I remember correctly (included a boatload of debt), who ironically licenses ARM tech too. Overall, 73.8x financially unheard of and would be a tough sell for any CEO to his board of directors. If the buyer had to debt finance the acquisition, it makes it even less likely as ARM alone would not be a safe credit at 10% of that debt load (8x EBITDA leverage is very very risky) and the interest involved would be way more than the profit that ARM produces. I am more of a credit guy, so I cannot say for certain, but a stock for stock transaction would be highly diluted to earning per share unless it was an Intel or Apple or another company in that league. Nonetheless, it would still be dilutive in that case. A cash purchase would likely be a tough sell too in terms of returns on the investment. Could you earn 1.36% a year somewhere else with $8B in cash? That would be the question.

An acquisition by almost any company who would make sense buying ARM would almost certainly be scrutinized by the EU and USA regulators. I would guess that the conditions for the acquisition would pretty much be business as usual in that the buyer would have to continue to grant licenses as ARM normally does. So Apple buying them hypothetically really does not make sense if you cannot keep it totally in house for yourself to lock other out down the road. That would only get Intel to throw more money into R&D for this space as everyone likes choice and competition. That said, Intel might be the best choice to buy ARM to at least make sense on a long term basis as they could possibly begin integrating designs using the best of both etc. I am not a engineer, so I am not certain, but I would imagine years down the road there could be some mixing of tech.

I thought about companies who would probably benefit the most. I was thinking Nvidia, Xilinx, and Altera at first. However, they all already license from ARM already and they are too small to absorb the cost for the risk (Intel cannot be ruled out as a risk in the mobile market down the road). I am also certain other licensees would put up a stink with the regulators, making it even more complicated.

ARM is in an interesting place. They have great technology, but don't really make a lot of money for all the chips in the world based on their design. The next step would be sell their own chips based on their own design, which would move closer to an Nvidia, Xilinx, or Altera type company. However, selling your own chips has its own issues as you rely on a third party to actually make your chips. Nonetheless, that move would raise eyebrows for its current licensees. I suspect that is where they will go in the future in order to grow, unless they are happy with just making decent cash and paying a dividend like a mature stage type of company.

I agree with the major points of this article and most of the comments. This is extremely unlikely.

The only way this would make sense for Apple is if they maintained ARM's independence and simply used their ownership to steer ARM in directions beneficial to their products and maybe get a brief head start on competitors. Trying to deny competitors access to ARM IP would backfire and result in their, at least, flushing $8B down the toilet--possibly much worse. In addition to forcing competitors to look elsewhere in order to manage their risk, the integration costs and risk to Apple of bringing ARM into the Apple fold would be significant. Apple doesn't have the institutional experience to integrate mid-sized companies like this.

The other benefit to such an acquisition, of course, is as a risk management strategy. Apple has been brilliantly executing for the past decade, but this won't last forever. By investing in ARM they can broaden their business and reduce risk, at the potential cost of less spectacular short-term business results. But, that's the cost of managing risk. Apple could get most of the benefit of this by simply investing in ARM without buying it outright, however.

[Apple would then own 100% of the computer-phone processor market, and would use that ownership to strengthen its own position in the computer-phone market.

No they wouldn't. All they'd own is the IP most of the phone chips are derived from. As Jon points out, thanks to licensing deals it would be years before the sale could actually affect anyone manufacturing smartphones, plenty of time for them to develop competing products should Apple cut off their air supply,